Introduction
Diverse fund structuring alternatives and practices…
- Private equity, private credit, closed-ended real estate or infrastructure funds can be structured as limited partnerships, Variable Capital Companies (VCCs) or private limited companies
- Limited partnerships from offshore centres are also commonly used, notably as feeders of Singapore master corporate funds which can qualify for double taxation agreements
…with a range of flexible options
- Requirements applicable to the manager – which can be either a Licensed Fund Management Company (LFMC) or Registered Fund Management Company (RFMC) – are proportionate to the number of qualified investors and assets under management (maximum of 30 investors, of which no more than 15 can be funds or limited partnerships for RFMC, and less than SGD 250 million of assets under management)
- Fund managers managing real assets can benefit from a licensing exemption
- Singapore private capital funds can either be:
- Approved as an authorised scheme required to register a prospectus, or
- Exempt from authorisation and prospectus registration, when offers are made exclusively to qualified investors or through private placement
- No legal minimum or maximum investment periods, amounts or transfers of investment in fund
Sustainable finance: the state of play
According to a survey conducted by the Monetary Authority of Singapore (MAS) in 2020, 40% of assets managed in Singapore incorporated environmental, social or governance (ESG) factors.
In December 2020, the Monetary Authority of Singapore (MAS) issued Guidelines on Environmental Risk Management applying to asset managers and covering governance and strategy, research and portfolio composition, portfolio risk management, stewardship and disclosure. A Singapore taxonomy is currently being developed to strengthen the quality and comparability of sustainability disclosure with a focus on interoperability with foreign taxonomies.
Key figures1
Funding gap in small- and medium- sized companies in Asia-Pacific
Compound annual growth rate in private equity/venture capital funds’ AUM
Increase in infrastructure investments since 2015
Fintechs based in Singapore
Useful links
Supervisor
Stock exchange
Local promotion agency
Industry association
Fund vehicles for private assets
Limited partnerships – Limited Partnerships Act 2008 – Singapore Statutes Online (agc.gov.sg)
- Mostly governed by the limited partnership agreement (e.g. investment restrictions, removal of the General Partner and the manager, distribution waterfall)
- No legal requirement to appoint a legal director but a local manager must be appointed if the General Partner is not a Singapore resident
- Free from legal constraints to return capital and distribute profits
- Tax transparent vehicle for income tax purpose
- No requirement to make financial statements publicly available
- Information on Limited Partners can be kept confidential if certain conditions are met
Market insight: Limited partnership is the most common structure for private capital funds. However, Singapore managers often favour offshore centres’ limited partnerships over the Singapore partnership introduced in 2009, despite many common features
Companies
- Companies have legal personality, are subject to tax and therefore eligible to the double taxation agreement Companies are required to appoint a local director and a company secretary
- Shareholder information and financial statements are publicly available, unless certain exemptions apply
- Shares can be redeemed out of capital provided they are fully paid and if directors make a solvency statement
- Dividends may be paid out of distributable profits calculated across all business lines on a consolidated basis
Market insight: Despite corporate law constraints, private limited companies continue to be used by some managers, notably private credit managers, who seek a well-regulated and taxable vehicle on a standalone basis or as a master fund
Variable capital companies (VCC) – Variable Capital Companies Act 2018 – Singapore Statutes Online (agc.gov.sg) ; CIS-Code-Last-revised-3-March-2022.pdf (mas.gov.sg)
- A VCC can be set up as a standalone fund or as an umbrella fund with sub-funds or in master feeder fund structures
- A sub-fund’s assets and liabilities are legally segregated from those of other sub-funds and of the VCC itself
- It is possible to re-domicile a foreign fund as a VCC
- At least three directors are required including one independent director and one local resident
- A custodian that is an approved trustee must be appointed
- Possible use of International Financial Reporting Standards (IFRS) or United States Generally Accepted Accounting Principles (GAAPs)
- A VCC can potentially be eligible for double tax agreements and is eligible for income tax exemptions
Market insight: VCCs are extremely popular with fund promoters who can have different strategies for different sub-funds under one umbrella, and reduce administrative costs through shared functions and providers
- No separate legal personality; the trustee is liable for the debt and obligations of the unit trust
- The unit trust property is vested in a trustee who acts as the custodian and follows instructions from the manager
- Unit holders are entitled to share of distributions. Distributions may be paid out of operating cash flows
- Under certain conditions, including business expenditures of at least SGD 200,000 and a minimum of SDG 50 million of assets under management (amount or committed funds), a unit trust can qualify for income tax exemption on its investments
Market insight: The unit trust is an increasingly popular structure with sponsors of private funds. One of the exit strategies is to list the private fund as a registered business trust or a real estate investment trust on the Singapore Stock Exchange
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[1] 2020 Survey of Monetary Authority of Singapore, Private Credit in Asia (2020) AIMA Report, produced in conjunction with Alternatives Credit Council (ACC), Simmons & Simmons, and EY